Three years ago, my hubbie and I bought a house in Pittsburgh for 3k. We used credit cards for supplies and all of our meager savings to pay for labor. This was our only way to get into real estate as we do not make much money (I'm an educator and he is a laborer). Our investment is now worth around 85k (we put a total of around 35k into it) and we were approved for a 40k HELOC for our second property. We rent our initial investment for $800 a month. We own our investment outright. We are looking for some advice/input on what our specific next steps should be:
1. Is it best to use the HELOC and fix and buy an investment property outright and then rent and refinance with a mortgage (pay off HELOC)?
2. Should we use the HELOC and buy, fix and then sell the next property (pay off HELOC)? This way we can put money in the back faster?
Basically, we are trying to figure out the best way to proceed with owning a property outright (85k value) and having a 40k line of credit on the property. We would like to scale, but also figure out the best way to maximize our cash flow and put some money in the bank.
We do have a lot of debt and live paycheck to paycheck, but we were able to figure out how to get into the investing game. We can still get properties in Pittsburgh pretty cheap.
We are considering trying to get into wholesaling too.
Any advice is much appreciated!
First - awesome job on bootstrapping that first property! Well done!
To (try and) answer your question, I hate to say it, but it really does depend on our your goals and current situation. Normally, if someone wants to scale quickly, I think a BRRR strategy (and leveraging your properties) makes a lot of sense. In advance of using the HELOC, I would save about 6-9 months worth of payments. Then use the HELOC to acquire your next property and you'll have 6-9 months to get it finished. Then, I would probably take a mortgage out on that and keep it as a rental. So you'll still have your first property free and clear (b/c the mortgage on property 2 would pay off the HELOC) and the second property will have a mortgage, but should still cash flow for you. Anyways, that's a bit off the top of my head. Just be careful you don't get in over your head. I think having some cash savings is very important. Good luck!
Thanks so much! This is what we were thinking too, but need some advice from the pro's!